European stocks hit seven-week high after ECB holds rates

European shares closed at their highest level in seven weeks on Thursday, October 29. The euro edged up and French government bond yields eased after the European Central Bank kept interest rates unchanged, on the same day President Christine Lagarde said she would leave her post early. The pan-European Stoxx 600 ended 0.77% higher at 649.11 points, its strongest close since September 8, as investors weighed solid corporate earnings alongside the ECB decision, Reuters reported via The Business Times.businesstimes.com.sg

A hold, and a surprise departure

The ECB left its deposit rate at 2.5% after raising it twice this year, even though eurozone inflation reached 3.8% in September, according to Euronews. Lagarde said policymakers debated a hike before deciding unanimously to hold. She also signaled that the pause may only last until December, according to Yahoo Finance. Reuters reported that markets were pricing roughly a 75% chance of a quarter-point increase in December.euronews.com+2

Hours before the decision, the ECB announced that Lagarde will step down on February 7, 2027, about nine months before her term ends. She said she was leaving so she could speak freely on matters beyond monetary policy, Reuters reported. The timing gives EU leaders a chance to pick her successor before France's presidential election.reuters.com+1

Currency and bond moves

The euro fell to its lowest level against the dollar since May before turning slightly higher, Reuters reported via CNA. The dollar also softened after US data showed inflation picking up. "The bigger news is the confirmation that Christine Lagarde will leave her post in February," said Marchel Alexandrovich of Saltmarsh Economics, who added that markets would not be surprised.channelnewsasia.com

France's 10-year bond yield slipped further below 4.9% after the decision, according to Trading Economics. Even so, worries about France's public finances ahead of the election continue to weigh on its bond market.tradingview.com

Earnings drive stocks

In stock markets, Germany's DAX rose 1.4% and France's CAC 40 gained 1.1%, MT Newswires reported. Shell ↘ 3.45% hit a record high after posting its largest quarterly profit since 2022, and TotalEnergies ↘ 2.67% advanced after its third-quarter profit more than doubled. Airbus, Aixtron and Renault also gained, while BBVA Banco Bilbao Vizcaya Argentaria, S.A. ↗ 2.13% pulled bank stocks lower, according to The Business Times.fidelity.com+1

Attention is now turning to the race to succeed Lagarde. "It would be very interesting to see who replaces her," said David Morrison of Trade Nation.